MoD under fire over missing millions

The Ministry of Defence overspent by pounds 235m in the last financial year. As it was revealed that millions had disappeared from accounts used to pay soldiers, and millions more had been overpaid to contractors, Ian Burrell heard the angry reaction of the chairman of the Commons Public Accounts Committee.

The most extraordinary finding in a report on MoD finances published yesterday by Sir John Bourn, head of the National Audit Office, was that defence chiefs were totally unaware that they had a problem.

In March, just a month before the end of the financial year, they were confidently reporting that they would come in pounds 129m under budget. Their forecast was pounds 364m off the mark.

It is unusual for a government department to overspend. Normally, if officials realise they will be over-budget an application is made to Parliament to make allowances for the added expenditure.

But the MoD, which had an overall budget of pounds 23.8bn, was unaware it had a problem. One of the most significant reasons for the overspend was the cost of ground operations by UK forces in Bosnia, which was pounds 45m more than defence chiefs had anticipated.

The NAO is especially critical of the MoD's handling of a project to decontaminate the Waltham Abbey Royal Gunpowder Mills site in Essex, which was used for gunpowder research and manufacture from the seventeenth century until it was closed in 1991. The MoD, which had estimated the cost of the project at pounds 7m, spent pounds 16m on cleaning up the 75-hectare site which is now scheduled as an ancient monument.

But defence chiefs did not seek permission for the overspend and when they subsequently went to the Treasury for retrospective approval it was refused by Treasury staff who ruled that the expenditure had been irregular.

David Davis, the Conservative MP who chairs the PAC, criticised what he described as "considerable weakness in the financial controls of one of the largest Whitehall departments".

The MoD's handling of the Waltham Abbey project had been "completely unacceptable", he said: "It is a particularly sorry state of affairs that the accounting officer had to conclude that not all the expenditure was necessary and ... full value-for-money was not achieved."

Criticism was also made of the MoD's suspense budgets, which were devised by the Army to pay soldiers in cash. The NAO found that a debit of pounds 16.3m could not be reconciled and had had to be written off. During 1996-97, the MoD maintained 2,500 suspense accounts. The NAO examined a sample and was unable to reconcile the balances in more than a quarter of them.

Mr Davis said there was "simply no excuse" for the discrepancies. "In large organisations errors in this sort of account are negligible or zero."

The MoD, which overspent by pounds 9m in 1995-96, said that the latest overspend was "much greater than usual", but pointed out that it represented only 1.1 per cent of total budget.

"Measures are being introduced to improve forecasting and profiling techniques and to improve communications," said a spokesman, who conceded that the waste at Waltham Abbey had been due to "poor project management". "In the future a full audit trail will be retained and scrutinised and this will enable any irregular activity to be identified."